Economy will be slowing but not reaching recession – forecasts

Economists are forecasting lower but still significant economic growth when GDP figures come out from Stats NZ on Wednesday.

They think the much forecast “small” recession will not be here yet, meaning the mortgage industry might have to wait a bit longer for that recession to purge the economy of inflation, and bring interest rates back down to the level that will encourage borrowers through the front door again.

Wednesday's figure is likely to be low, but still positive, according to ASB's economic team. They think quarterly growth til September will be 0.9%, down from a post Covid bounce in the second quarter of 1.9%.

Broken down, they forecast low agricultural production and housing construction, but better factory output.

In coming quarters, they say overall growth will slow to a crawl in 2023 and 2024, and that could bring the start of the recession the RBNZ has spoken of.

However, the consolation prize for that - lower interest rates – could still be some way off.

“We think it will be mid-2023 before the Bank will be comfortable with where OCR settings are sitting to pause the tightening cycle, and mid-2024 before it is prepared to start bringing the OCR down,” the ASB team wrote.

Kiwibank economist Mary Jo Vergara has the same 0.9% figure as her ASB rivals for the September quarter. She thinks the services, goods and construction sectors will turn out to have been strong.

But that is for now – the outlook for future quarters is looking poor, she says, with strong inflationary pressures making the RBNZ keep everyone on a tight rein.

Westpac's acting chief economist Michael Gordon also thinks the economy will have grown by 0.% for the September quarter. Tougher times are coming, he says, but not just yet.

“For now, the economy still has some solid momentum, with the return of overseas tourists providing a fresh boost to demand,” Gordon said.

However, this sort of guarded optimism will not last.

“Discretionary spending will be squeezed a lot harder in 2023 than it has been in 2022, as more mortgages come up for refixing at substantially higher interest rates,” he said.

“And the RBNZ has further to go to bring inflation under control.”

In other words, the recession that will cure the inflationary disease is coming, but has not yet started. As a result, the inflationary malady will stick around for a bit longer, along with its foul-tasting medicine, high interest rates.

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